IRS Guidance On Binding Agreement

[McMoo]

Requirement 1: Enforceable under state law
Requirement 2: Does not limit damages to a specified amount (see exception below)

Exception to Requirement 2: If damages are limited to more than 5% of the purchase price, the contract is not considered to limit damages to a certain amount.

Does anyone see a limit to damages in the Rivian contract?

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[zipzag]

4. Disclaimer of Tax Eligibility. Rivian cannot guarantee that you will be eligible for any tax credits because you signed this Agreement. You are responsible for your own personal tax situation and determination of eligibility for credits and incentives for Federal, State, and Local taxes. Rivian does not guarantee the actions or determinations of the Internal Revenue Service or any other tax authority, and Rivian is under no obligation to defend you in disputes with any tax authority. Rivian makes no representations under this Agreement as to pending or future legislation.

Rivian would be incompetent to not include that language. The fact remains that the binding contract was either created by tax experts or Rivian's GC is incompetent.

 

[crow979]

I am a lawyer and, to be fair, if this was an issue I was asked to argue on behalf of a client, I would take a fee to argue either side of this 'binding contract" issue. I signed an "Binding Purchase" Agreement on my July 2021 reserved R1S last week. As a reinstated order, I even put my $1000 back in. I think reading the IRS guidance, they would NOT consider it to be a binding contract, but that doesn't mean they are right or that they won't change their mind. Practically speaking, I plan on taking the credit and I'd let the IRS argue that it wasn't binding when there was a clear intent to enter into a "binding contract" between Rivian and myself. More importantly, I think it unlikely the IRS will pursue these claims as it is mostly adverse to the administration's intent. Regardless, I'd be prepared to pay it back if they really pushed the issue to Tax Court.

 

[Q-Dub23]

This is pretty nuanced guidance but here are my two cents:

The IRS' view on what concitutes a binding contract under 30D is very relevant, and probably determinative unless you want to take the IRS to court over $7,500. And I think as a taxpayer you would have good arguments here as the limitation of damages requirement is nowhere in the statute.

Taken on its own terms, the IRS guidance has two operative elements. First, the contract must be binding under state law. Second, it must not limit damages to a certain amount. The first point will depend on the state nearest to your delivery address that Rivian is licensed to sell vehicles. That said, under any law it is hard to see how this agreement isn't binding, though there are clearly some key terms that would need to be addressed in the final purchase agreement. On the second point, making the deposit nonrefundable as to $100, does not expressly limit damages payable by the purchaser. By its terms that provision merely serves as consideration to Rivian for the agreement. I would argue to the IRS that though $900 of the deposit is refundable, nowhere are Rivian's damages against the purchaser limited and surely it is the purchaser's damages that are the subject of the guidance as it is the purchaser who would be the claiming taxpayer. The IRS could take a more expansive view of its own guidance that any limitation of damages, even on the seller, qualifies and that Rivian's limitation of liability to amounts paid under the agreement qualifies. I think they would be on thin ice because the operative purchase obligation is in this agreement and therefore any purchase price you pay for the vehicle is the cap. That high amount would comply with its own guidance.

@crow979; id love your thoughts.

 

[Speedrye]

The first point will depend on the state nearest to your delivery address that Rivian is licensed to sell vehicles.

Layman question- How does that work regarding jurisdiction? The agreement doesn't specify a jurisdiction, but it does point to Rivian.com's legal page for dispute resolution, where the customer's location is specified for jurisdiction. How does Rivian's lack of a license in my state affect the contract?

 

[MtLemmon]

Another layman's question: Doesn't Rivian have to also offer some 'consideration' for it to be a binding contract? I don't see any consideration from Rivian in the binding contract to purchase. This question was unanswered in another thread.

 

[timesinks]

Another layman's question: Doesn't Rivian have to also offer some 'consideration' for it to be a binding contract? I don't see any consideration from Rivian in the binding contract to purchase. This question was unanswered in another thread.

You promised to buy and they promised to sell. You both made "consideration". The $100 operates more like liquidated damages; no cash has to trade hands to consummate a "contract".

 

[moosetags]

I signed the binding contract to purchase with Rivian. I will be applying for the federal tax credit under the old law. If I get, great. If it is denied, I will buy the truck anyway.

Brian

 

[MtLemmon]

You promised to buy and they promised to sell. You both made "consideration". The $100 operates more like liquidated damages; no cash has to trade hands to consummate a "contract".

Hmm...the $100 was my consideration, but I don't see Rivian's consideration if they decide not to sell you a vehicle. (hypothetically speaking of course).

 

[MtLemmon]

Hmm...the $100 was my consideration, but I don't see Rivian's consideration if they decide not to sell you a vehicle. (hypothetically speaking of course).

Unless Rivian giving back to you the remaining $900 of your reservation deposit counts as Rivian's consideration (loss of sale) if they decide not to sell. It seems that Rivian considers the full $1000 reservation as our consideration:
"As a part of the consideration you provided to Rivian for this Order, one hundred dollars of the deposit amount you submitted with your preorder/reservation becomes non-refundable"

 

[timesinks]

Hmm...the $100 was my consideration, but I don't see Rivian's consideration if they decide not to sell you a vehicle. (hypothetically speaking of course).

https://www.law.cornell.edu/wex/consideration

consideration
Consideration is a promise, performance, or forbearance bargained by a promisor in exchange for their promise. Consideration is the main element of a contract. Without consideration by both parties, a contract cannot be enforceable. For instance, if a person used the money to purchase an apple, the apple is the merchant’s consideration, and the money is the person’s consideration.
Types:

• Consideration could be a promise, performance, forbearance, or property with legal value, but the economic benefit is not required.
• A gift or gratuitous promise cannot be a consideration for they have no bargaining. The past performance also cannot be a consideration as there is no exchange.

The promise to sell is the consideration Rivian is giving you. You are promising to buy and agreeing that the $100 is non-refundable.

What you get if Rivian breaches is not consideration; it's damages. Those have not been specified, so if they breach, you get to go to court and figure out what's fair.

 

[Allthetoys]

I think the fact that Rivian the contracts didn't say the $100 was liquidated damages and left open the possibility of further recourse, it may still be fine.

Though, since it's all about the technicalities, you may want to find out if a vehicle purchase contract without a VIN and final sales price is enforceable in your state (it's not here in WA).

Here in Illinois they want a VIN and Vehicle Registration meaning its ready for Road use.

 

[Q-Dub23]

I could be missing it but I don't see anywhere that Rivian is promising to sell. Rather, the customer is merely agreeing to buy.

Another layman's question: Doesn't Rivian have to also offer some 'consideration' for it to be a binding contract? I don't see any consideration from Rivian in the binding contract to purchase. This question was unanswered in another thread.

If you read the contract as merely a customer agreement to purchase and not a Rivian agreement to sell, then the entire contract is arguably just a gratuitous grant of a put option to Rivian and therefore unenforceable. But, one could argue that it is in fact an agreement to sell and also that Rivian is fixing pricing (subject to some carve outs).

By the way, Rivian's T&C's, which the agreement incorporates by reference, let you opt out of the class action waiver and mandatory arbitration provision. I opted out because if there is a dispute about the agreement, I'd much rather be able to bring a class action to share legal costs.

 

[R1TFTW]

So I had my order placed and had my contracts signed somewhere around 8/4. I made $7,000 payment on 8/11, and truck paid in full on 8/15. I pick up the truck on 8/18 and complete the purchase. I should be good no matter what right? Even though I don’t have that binding agreement thing?

 

[SeaGeo]

So I had my order placed and had my contracts signed somewhere around 8/4. I made $7,000 payment on 8/11, and truck paid in full on 8/15. I pick up the truck on 8/18 and complete the purchase. I should be good no matter what right? Even though I don’t have that binding agreement thing?

your contracts were signed, so that should count. Also put down a considerable amount.

And you purchased the truck in full before it was signed, so it seems like a hard argument that you weren't under contract for the vehicle. Depending on the State, you may technically own it already anyway.

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